Why a healthy New Zealand startup ecosystem is key

Business hubs and coworking spaces that bring creative people together in one place, generate energy and vitality.

With the enormous influence of the knowledge economy on business, the value of a strong startup culture as an engine of innovation has been recognised around the world. But identifying how to create the conditions in which start-ups can flourish – channelling something that is essentially spontaneous – has been a far greater challenge.

1. Thinking entrepreneurially

Startup culture starts with a mind-set: you have to be entrepreneurial to succeed. This requires original thinking to not only understand how a novel idea can make money, but to also identify a solution to a problem, or a gap in an industry market.

It involves actively seeking out a target market, identifying its users as well as their needs, and combining a response in a novel way that will allow you to capture market share, or create a wholly new market.

In order to develop a ready supply of successful home-grown entrepreneurs, one of the fundamental areas New Zealand needs to address is how they are encouraging young people to develop their natural curiosity. Perhaps they should be practicing how to explore an idea, trial and test it, and learn.

Hypothesis generation, rapid prototyping – these are the practices that will prepare them for the world of start-ups, and with it, help generate a passion for innovation.

2. Thinking about the money

Startups by their very definition are risky. But when they work, as generations of successful business owners can attest, the rewards can be great indeed.

The question of money in a start-up requires a fine balance. Everyone wants to find the next ‘unicorn’, that next multi-billion-dollar business. But each of those businesses started with a small idea and a small revenue opportunity.

In order to create momentum in a start-up, you have to be aligned along two prongs: if you’re not driven to change the world, nothing will drive you enough to make money. That little idea has to be a stepping stone to something big – if you don’t have that long-term global vision, or at least the wider local market, then it will be hard for you to execute and attract local investors.

New Zealanders are constrained by the ready scale of their immediate market, call it innate humbleness or tall poppy syndrome – this mindset holds Kiwis back from seeking global recognition. Being a successful startup also means bringing people along with you. Businesses in Silicon Valley want every employee to have a stake in the company and it is very common for those involved in a startup to get stock options in the company.

The reason behind this is clear – being in a startup is a long road and there are a lot of hardships, requiring laser focus and rock-solid resilience to set backs. If every single person is obsessively aligned with the delivery of value, then a start-up has a greater chance of success.

3. Investing for success (and failure)

The other key financial element that start-ups struggle with locally is attracting ready sources of finance from people that understand the nature of the investment. Unlike larger economies, like the US, where investors readily invest in a hundred start-ups in the hopes that one or two investments will pay off, in New Zealand and Australia the tax environment and the funding models just don’t allow for the same level of support. Also, the smaller pool of investors and smaller economy can set Kiwi startups back.

Organised investment funds, like ICE Angels, are making inroads here, but it’s important to have more people prepared to back the entrepreneurs with the big, bold ideas – because that’s where the real returns – both to investors and the broader economy – will be.

This also requires a change in thinking, especially where larger business investors are concerned. The only way to find the next big thing is to take a big risk. But it is a long game – a 10 to 20-year investment.

4. Establishing a location

Along with a great idea and the funding to make it happen, the other vital aspect of startup success is location. As was established in the earliest startup models, bringing people together in one place generates an energy and vitality that can produce results far greater than the sum of their parts.

It’s occurred all over the world in places like Silicon Valley.

By putting creative people in a vibrant environment designed to support the way they work, there has been a rise in the number of creative exchanges – everyone’s learning is greatly accelerated by being in the same place.

[bctt tweet=”Being in the centre of a creative environment is critical for fledgling businesses to learn, gain experience and be around like-minded people.” username=”nzpreneur”]

The business hubs and co-working spaces established within the New Zealand startup ecosystem are a good example of a way to harness this potential.

5. The right elements for success

In this country, there is no shortage of ideas – and entrepreneurial people with the potential to make them really big. In fact, according to 2017 data from the Ministry of Business, Innovation and Employment, 28 per cent of New Zealand’s GDP is estimated to be produced by enterprises with less than 20 employees.

What is lacking, however, is the system to nurture, develop and accelerate the potential of what is available, coupled with the frameworks and discipline to take them from small idea to big execution. Along the way, Kiwis need to think about how they are developing the next generation of entrepreneurs. And how they are creating a system that allows investors to take more chances without so great a level of risk.

While they should look to their government bodies to help along the way, it is also up to others to look at how they can construct a community of innovative entrepreneurs like those overseas.